We design money with the blockchain

Would you design and run your own, fairer money system, with your own politics built into it, if only technology allowed?

Bitcoin proved the blockchain as a revolutionary force in money production.

Bitcoin proved the blockchain as a revolutionary force in money production. Image: CC 2.0 Steve Jurvetson https://www.flickr.com/photos/jurvetson/8410385932

“Blockchain technology will let us build the internet afresh, and better. Its novel approach to organising data and decision-making will totally disrupt everything from publishing and text messaging, to banking and government. It gives revolutionary new hope for society, across the board.” So say the pervasive blockchain evangelists stalking our internet ;-p

Many readers will know the blockchain as a recent technology that enables peer-to-peer communities to manage currency, governance and a host of other activities which previously required intermediaries, like governments and banks. The internet relies on databases to manage information which is accessed by web users. The blockchain is a new kind of distributed database, which depends on the networked computers of ordinary users to keep it running and keep it accurate.

In general, all data in this kind of database, whether that’s data on money transfers or electoral votes or social media posts, is visible to all users and cannot be tampered with by a higher authority, such as a government or a bank. Its workings are determined by the user community, whether that community is a small group of local residents, or every computer user on the planet.

Since its advent as the technical foundation of Bitcoin, a novel form of digital money, there have been countless lofty claims about the blockchain phenomenon. Now that blockchain is well into its 2.0 phase, with the Ethereum project giving rise to blockchain-based allsorts, including voting systems and legal apparatuses, critics are similarly widespread, ready to complicate this hope.

In spite of the debates, the blockchain space is a classic case of coders getting on and creating their idea of the future regardless. Bitcoin has been an unstoppable demonstration of the possibilities and has set major precedents for the digital future. Similarly, new frameworks and experiments are today being deployed, which aim to shape standards for governance, the economy and the wider information society. Whether we like it or not, whether deemed legal or otherwise, we can see networked blockchain initiatives defining the future today.

As with so much technology, the frontier moves ahead regardless of critics, states and their populations. Citizens need a role in making these realities, so we must join the action, learn the tools and forge them for our own needs, putting “society in the loop”.

Whilst we must think critically about the developments, we see the nascent blockchain technology as a potent site for novel, positive economic and political change. Its unique offering of decentralised (or distributed) peer-to-peer control over the management and record of transactions, means that institutions, like banks, that we have traditionally trusted – or rather had to trust – to intermediate between us can be side-stepped. The software involved is designed to allow networks of ordinary computer users – who might be based all over the world – to come together to create a collectively-run network that they trust, thanks to cryptographical techniques that allow data to be securely stored and shared. The software is typically based on collaborative, open-source principles and so allows us to achieve greater consensus and fine-grained control over how it operates too.

There are so many examples of viable and visionary blockchain projects in production – from social media network AKASHA to governance app Boardroom. AKASHA, for example, stores social media posts on a shared, public blockchain that anyone can download and use, forever – which, they hope, makes those posts immune to censorship.

OurCoin: crafting a currency

To explore the blockchain’s potential benefits, we considered a novel blockchain-based currency and economic governance system. Let’s call it OurCoin – a currency amenable to the needs of a community that espouses values of fairness and equality, which even the IMF is calling for more of. These virtues are notably absent from most monetary systems.

Bristol Pound

The Bristol Pound is a British community currency with specific features desirable to its users.

Here we envisage key, possible features of the currency, which blockchain technology would enable.

  1. Preferences against extreme inequality could be incorporated into the design of the currency. For example, individuals holding wealth above a certain threshold could see excess coins in their accounts redistributed for the community’s benefit. This policy is similar to a wealth tax but more direct and transparent – demonstrating how OurCoin can bring monetary and fiscal policy together. The community could democratically decide the specifics of the redistribution, such as funding a community or infrastructure project.
  2. Monetary policy could be directly managed by popular approval too. Consider demurrage – when the value of your money falls if you hold it for more than a certain period of time. This could be a feature of the currency used to disincentivise hoarding and stimulate economic activity. Freicoin already exists with this feature to “eliminate the privileged position held by money compared with capital goods, which is the underlying cause of the boom/bust cycle and the entrenchment of the financial elite”. As with any element of OurCoin’s design, demurrage could be weighted in various ways such as to primarily target hoarding of large cash piles, such as the billions currently held, unproductively, by large global corporations.
  3. The community can even offer people different ways to obtain the currency. For example, it could be issued to meet the needs of today’s economy, such as through universal basic income. Or, workers and firms active with OurCoin could receive it at a preferential rate (as opposed to those obtaining it by, for example, buying it with other currencies), which would also incentivise economic activity within the system.
  4. Incentives could be introduced to encourage spending that supports the community, either directly (e.g. shopping at local businesses) or by supporting the ethos of community members (e.g. the community may want to encourage spending in low versus high carbon industries).
  5. The community could vote to pardon individual debts held in the system through debt jubilees.

Further specifics and other ideas could come from ongoing community consultation, or expert input – from governance experts, political philosophers, economists, psychologists and sociologists.

With OurCoin It would be possible for all users to vote, policy by policy, on the precise mechanics of the system. Difficult decisions, guided by expert insights, might come to be made with the help of integrated, next-generation systems which allow democratic processes to benefit from the best ideas as with alternative, delegative democracy models.

Our currency would include the ability to pivot, incorporating new policies and features over time, as elected by OurCoin holders. In this way, the community can learn, experiment and decide to change the currency rules as appropriate. This process would be highly accessible, encouraging explanation and incentivising collaborative development, even on the minutiae of the system’s functioning. It is something like this that shapes the development of community-run Facebook-alternative Diaspora.

We hope to recruit users, including those who are wealthy in other currencies, to use OurCoin in spite of the impact that e.g. redistribution may have on their own wealth. The attraction would not only be a more just, democratic economic system, but also the growing wealth of services available exclusively, or on favourable terms, to OurCoin users – “there’s only one way to pay for this particular massage, Mr. Hammond”. We believe that through experimentation, the community of users could quickly explore and develop an economic system that works better for everyone. Even those people who are currently wealthy in other currencies could prefer OurCoin, despite its redistributive tendencies, if it offers a more stable and prosperous system too. This would become more effective at scale.

Making OurCoin your coin

One of the active lines of research and practice in the blockchain universe reduces the barrier to entry for people or communities wanting to set up systems of this sort, along with customisations specific to their needs. What once required immense logistical capacity and resource, can now be brought about by small groups of dedicated citizens.

At the practical heart of the project, economic ideals and mechanisms manifest in the currency’s rules of operation would give people the opportunity to vote for and live by an alternative, with their cash and their labour. Whilst the exact mechanisms required to create an equitable yet productive economic schema of this sort may take time to perfect, we have the means here to try them out, and move towards a better way. If we can show a workable, attractive system, people will be induced to buy in. Much like the technology of the blockchain itself, once it’s been proven, there’s no turning back – you can’t unsee it.

The most radical effects, such as wealth equalisation, can only occur once the currency achieves really significant volume and has enticed people to bring a large part of their own economic activity into it, in some cases at significant personal expense. That is a longer term goal which requires the development of a truly abundant ecosystem within the confines of OurCoin, so we must show that the incentives we create are sufficiently effective. Those incentives will certainly be unlike others that have gone before, given the fine-grained focus of such code-based systems. Nevertheless, the likelihood of making these extraordinary currency conditions succeed is an open question.

The global economy has always been a massive experiment; one that blundering politicians, unaccountable global institutions and corporations currently have disproportionate power over. Citizens deserve the chance to design their own money.

Implementing a blockchain-based economic system, like OurCoin, at a national or global level requires revolution or long transition. But experimenting to demonstrate it just requires some participation in a complementary currency. The blockchain enables us to do this at a scale not seen before.

Here’s your chance to help design something better.

In the spirit of open collaboration, please add your own ideas, criticisms and desires for this model in the comments or as annotations with hypothes.is.

  • I’m interested in the distributed technology aspect of this but my feeling is that the article is trying to go in two directions at once. There’s a very important question that needs to be explored on what sort of monetary system a healthy society should implement. There’s another important question on whether monetary innovations can help us transition from the dysfunctional society we’re currently stuck with to the kind of healthy system most of us would like. But they’re distinct questions and this article seems to be mixing them together.

    My view is that the second presupposes a satisfactory answer to the first. In other words, I don’t think we can do anything useful, by way of monetary reform, to break free of the current flawed system unless we have a clear idea of how money should function within a healthy political system. So my comments below focus on that.

    From that perspective, many of the points the article raises are independent of the specific technology and of the specific issue of money. For example, in various places it talks about governance (“The community could democratically decide …”; “With OurCoin It would be possible for all users to vote, policy by policy, on the precise mechanics of the system”) but in a healthy polity these are not likely to be useful features of a monetary system.

    Or perhaps I should say the question of whether they’d be useful depends on the answer to a more general question on the relative merits of participatory and deliberative democracy. The fact that, technically, all citizens can vote, policy by policy, sounds good from within a rotten system but, in practice, participatory democracy of that kind will almost certainly lead to government by those who have most time, resources and inclination. Most of the public don’t actually want that level of engagement; they’d rather delegate governance to people they can trust to do it competently and with integrity – which brings us back to representative democracy.

    So, the key question is primarily political: can we design a political system which allows us to properly hold our representatives to account, and provides a framework that encourages deliberation? If we can find a satisfactory answer to that, the ability to integrate those functions into the design of money becomes irrelevant. If we can’t find a satisfactory answer to that question for the political sphere as a whole, we’re unlikely to find one for specific spheres like money; the fact that, technically, everybody could contribute won’t change the fact that, in practice, probably only a small minority ever will.

    A fundamentally healthy political system would also negate the need for other aspects that you mention. For example, I’d say your bullet points 1 and 5 (on inequality and debt jubilees) are only really relevant in a fundamentally flawed system and, as you’ve floated them, they would introduce an arbitrary element into something that ought to be governed by well defined principles.

    A healthy political system would address the underlying factors which lead to excessive inequality and hence the need for debt forgiveness. Establishing sound principles of inheritance, for example, would solve many of the
    problems which stem from excessive accumulation of wealth.

    Having said that, there is a wholly monetary factor which is a major cause of inequality – the rentier aspect underlying the phenomenon of positive interest on savings – and there the demurrage feature you mention in your bullet point 3 would be essential (though I prefer the term ‘negative interest rates’ because it’s more obvious what it means).

    However, the root of the rentier problem lies in the fact that money in its current form serves multiple functions which are not wholly compatible with each other: as medium of exchange its value depends on it circulating at a reasonable rate, while its value as a store of wealth depends on individuals being able to take it out of circulation (and its function as a standard of value constrains monetary authorities’ ability to issue it freely). The fact that money can be used as a store of wealth means that anyone who has a surplus effectively has the power to hold the medium of exchange hostage and can therefore charge others for the use of it. That’s the reason people are paid when they put money aside for future use. In a world where all forms of real wealth have a ‘carrying cost’ it is absurd that money doesn’t; in a rational system, saving would be seen as a form of consumption which people would expect to pay for.

    A healthy monetary system would separate the practical functions of money: it would have a medium of exchange which would be easily transferable but wouldn’t hold its value indefinitely; and it would have a medium of saving which would hold its value but not be directly transferable, and would incur costs when it was bought and sold.

    But it’s not the ‘billions currently held, unproductively, by large global corporations’ that present a problem (even though they’re the main beneficiaries) because large corporations are unlikely to hoard significant amounts of physical cash. They do certainly hold excessive liquidity but that’s always in bank deposits on which it would, in principle, be very easy to impose negative interest rates. The true problem lies in the fact that, if negative rates were charged on bank deposits, many small savers would choose to hold their savings in cash, which would lead to a shortage of currency in circulation. This is the primary technological challenge: making physical cash in a form that will lose value if it stops circulating but cannot be easily forged.

    So I’d say the demurrage charge should be treated purely as a device for keeping the medium of exchange circulating at an acceptable rate, rather than as a levelling device. It’s important that the design of the monetary system does not itself create unfairness (as the current system does) but it’s not the job of the monetary system to try and produce a fair distribution of wealth when it is other factors which are making it unfair.

    Regarding your points 3 and 4, on how currency is put into circulation and how people are encouraged to use it, I think it’s again worth thinking first about what would happen in a healthy society.

    My starting point here is that the value of any currency rests on people’s willingness to accept it. As far as I can see, what underpins the acceptability of established currencies is governments’ obligation to accept it in payment of taxes. That creates an incentive for private individuals and businesses to accept it in payment for goods and services (because they know for sure that they’ll be able to use it).

    So, in a healthy society, all that needs to happen is for governments to spend the currency into circulation through its normal purchase of goods and services, and remove it from circulation through taxation.

    Which brings me to a question the article doesn’t go into: how to maintain a stable value for a currency in an economic environment that is in constant flux.

    The conclusion I’ve come to is that one of the most serious flaws in our current system is the fact that government’s fiscal accounting is based on a unit of account whose value is arbitrary and, for practical purposes, determined by the activities of private interests. One of the reforms I’d like to see is the introduction of an official unit of account based on minutes/hours of passive labour.

    That would allow an inversion of the whole taxation/government spending narrative. Instead of governments constantly adjusting budgets to fit what they feel they can squeeze from the taxpaying public, they could determine a total spending budget on the basis of x number of hours per month/year for every adult and issue an amount of currency to suit. That would establish a limit for the amount of medium of exchange in issue, and its velocity in the economy could then be managed by adjusting four factors: the rate it loses value when it stops circulating; its latency time (how long it can be held before it’s deemed to have stopped circulating); and buy and sell rates for the savings medium.

    All of that, of course, requires a more enlightened government than our present system shows any sign of giving us. I’m dubious, however, whether private monetary innovation can make any significant beneficial impact on society’s economic health in the absence of major political reform. It might perhaps be useful in setting up a parallel society (which at one time I did think was the only way meaningful reform would come about). But, post-Brexit, I think the chances of radical political reform are much greater than they were before and my focus now is on how we can seize the constitutional moment.

    • Matthew Linares

      Thanks for your thoughts Malcolm. I think it’s useful that you distinguish between 1) the ideal monetary system, and 2) whether monetary innovations can help us transition to a better society.

      In response I’d reiterate that it seems to me, in spite of what you say, that one might realistically hope to collectively find solutions to 1) through informed experimentation in the sort of hands-on democratic fashion we describe in the article. I think that’s at least as likely to work as discovering, a priori, what an ideal monetary system is, and then expecting a good government to implement it.

      I agree that a lot of the discussion about what a good money system looks like should be had in thoughtful, measured circumstances, but ultimately, whether those circumstances involve traditional government process, followed by regulation to put them out in the world, or whether you take our approach and attempt to simply build them into a living currency, monetary policy in the real world is always an experimental discipline. Mistakes and successes are likely both ways.

      Another pertinent point we make in the article is that, whether or not the process of designing monetary systems in this way seems like the right method to you, it is happening regardless. Bitcoin practically demonstrated new properties of money, and those are not going away. In that case, action spoke louder than words, and our contention is that such a process can be expected to play out again. We would like to take part in that.

      You say: “the key question is primarily political: can we design a political system which allows us to properly hold our representatives to account, and provides a framework that encourages deliberation?”

      The assumption that representative democracy is still the best means of deciding such matters, and that “in practice, participatory democracy…will almost certainly lead to government by those who have most time, resources and inclination” is to deny the possibilities presented by a whole raft of technologies that promise to make participatory, or delegative democracy, simple, powerful and (more) fun. They also effectively enable forms of representation (by delegation) which reduce the degree that time-poor individuals need to be active to take part – I can delegate my vote to an expert who I trust, much as I do by voting for my MP, although MPs are rarely as expert in most matters as anyone would like.

      Representative democracy, from a technical perspective, is deeply anachronistic and its defects are grossly apparent. We can do away with these middlemen, and regain a more appropriate, fine-grained connection to policy and law – that’s likely to be an attractive and inevitable approach before long.

      When that moment arrives, I expect you’ll see far more people engaging in the debates, feeling they have some actual and intimate effect on the decisions made for them, and subsequently understand the trickier elements of government, such as money, with the degree of interest that someone who can actually change the system pays.

    • Matthew Linares

      Thanks for your thoughts here. I think it’s useful that you distinguish between 1) the ideal monetary system, and 2) whether monetary innovations can help us transition to a better society.

      In response I’d reiterate that it seems to me, in spite of what you say, that one might realistically hope to collectively find solutions to 1) through informed experimentation in the sort of hands-on democratic fashion we describe in the article. I think that’s at least as likely to work as discovering, a priori, what an ideal monetary system is, and then expecting a good government to implement it.

      I agree that a lot of the discussion about what a good money system looks like should be had in thoughtful measured circumstances, but ultimately, whether those circumstances involve traditional government process, followed by regulation to put them out in the world, or whether you take our approach and attempt to simply build them into a living currency, monetary policy in the real world is always an experimental discipline. Mistakes and successes are likely both ways.

      Another pertinent point we make in the article is that, whether or not the process of designing monetary systems in this way seems like the right method to you, it is happening regardless. Bitcoin practically demonstrated new properties of money, and those are not going away. In that case, action spoke louder than words, and our contention is that such a process can be expected to play out again. We would like to take part in that.

      You say: “the key question is primarily political: can we design a political system which allows us to properly hold our representatives to account, and provides a framework that encourages deliberation?”

      The assumption that representative democracy is still the best means of deciding such matters, and that “in practice, participatory democracy…will almost certainly lead to government by those who have most time, resources and inclination” is to deny the possibilities presented by a whole raft of technologies that promise to make participatory, or delegative democracy, simple, powerful and (more) fun. They also effectively enable forms of representation (by delegation) which reduce the degree that time-poor individuals need to be active to take part – I can delegate my vote to an expert who I trust, much as I do by voting for my MP, although MPs are rarely as expert in most matters as anyone would like.

      Representative democracy, from a technical perspective, is deeply anachronistic and its defects are grossly apparent. We can do away with these middlemen, and regain a more appropriate, fine-grained connection to policy and law – that’s likely to be an attractive and inevitable approach before long.

      When that moment arrives, I expect you’ll see far more people engaging in the debates, feeling they have some actual and intimate effect on the decisions made for them, and subsequently understand the trickier elements of government, such as money, with the degree of interest that someone who can actually change the system pays.

      • Thanks for the reply, Matthew. I certainly didn’t mean to suggest that it wasn’t worth going ahead with. Apart from anything else, the acceptability of political solutions often depends on being able to demonstrate their technical viability. So, from that perspective, I’m wholly in favour of you developing this.

        “discovering, a priori, what an ideal monetary system is”

        I’m not sure that analysis rooted in observation of how monetary systems have worked over the centuries can really be described as ‘a priori’! I see it more as synthesis of the lessons that can be learnt from the experimentation that has brought us to where we are.

        But, in the current political climate, your comment about ‘expecting a good government to implement it’ is certainly fair. Though that is why my main focus is on how we might bring about good government.

        I also didn’t intend to deny the possibilities presented by technology because I can certainly see it adding considerably to a well-designed political system. I would, however, be strongly against making it the foundation of a political system because of the risk of the technology failing (particularly when so much of it relies on energy sourced from other parts of the world). From that perspective, I’d say that representative democracy is probably the only system that can provide a resilient foundation for a mature society.

        You say that the defects of representative democracy are grossly apparent but what we see at the moment are the defects of its present manifestation, with all its flaws, and there are a number of possible improvements which could transform it (some of which make up the manifesto for the reform party I’m currently preparing to launch).

        • Matthew Linares

          Hi Malcolm, Yes, you’re right “a priori” is too strong/wrong! I just meant to stress that the fast, empirical testing of policies, rather than drawing up a full policy framework which is assumed to work and campaigning to implement that, is a way of doing things that feels attractive in a world where we can float an idea, vote on it and implement it fast. I guess it’s closer to the fail-fast, iterative approach common to software development. Of course, that has its drawbacks, but the approach is now available, and successful in other fields – politics lags in its deployment of technological philosophies, and this may be one example of that.

          I agree technological risks exist with such systems, but we are moving to a place where so much infrastructure is going online, that if the secure web fails, then it all goes! That’s not an argument in itself for putting more eggs in that basket, but then again, if we are committing so much vital infrastructure to the digital domain, we can expect efforts will be made to make it durable – and of course, there should be good reason for putting it online, which we suggest, could be far more effective governance methods, with all the benefits those bring.

          As for your hope that representative democracy in its “less-digital” form can/should be fixed, I wish you luck and, indeed, our support in that. I don’t deny that it can be done, but in light of my experience of that, I’m more optimistic about other approaches. I hope that one or both of us are right!

  • Arcurus

    Hi Malcolm,
    great article and thx for mentioning Freicoin. In away most if not all what you outlined above is what I also want for Freicoin to happen.
    Therefore I would be very happy if you want to join our discussions on Freicoin Alliance how we could implement these.
    Currently we are working in bringing an basic income experiment to run, we also outlined more in detail how other ideas like a common good supported economy could look like.
    Just take it as an experiment, if it succeeds Freicoin will become what you outlined for onecoin, if not, you get a lot of experience for how to create onecoin 🙂
    You can also just PM me if you want:

    https://freicoinalliance.com/profile/11-arcurus/?wr=eyJhcHAiOiJjb3JlIiwibW9kdWxlIjoibWVzc2FnaW5nLWNvbW1lbnQiLCJpZF8xIjoxMzAsImlkXzIiOjE0ODR9
    https://freicoinalliance.com/

    • Hi Arcurus,

      It was actually Marloes and Matthew who wrote the article. I just posted some sceptical comments!

      I did follow the Freicoin link when I first saw it and it looks like an interesting project … though my reservations about OurCoin apply equally to Freicoin. (One point I’d take serious issue with in the Freicoin explanation page is where it talks of people saving ‘real wealth (gold, silver, bitcoins, real estate, artwork and fine wine, for example)’. That includes real estate – something that none of us can live without – in a list of things which are completely discretionary! Monopolisation of land is even more pernicious than hoarding money.)

      I nearly asked Matthew what extra benefit OurCoin would bring but my comment was long enough already. Personally, I’m a bit dubious about the notion of competing monetary systems; money is intrinsically network dependent and its value rests absolutely on confidence that somebody else will accept it in payment. For that reason, I think that whatever the state accepts in payment of taxes will always tend to drive out other currencies. I regard it as important that the state should not prevent the use of other forms of money but I think it’s only when government monetary policy is very seriously awry that they’re likely to thrive.

      As I suggested in my original comment, I think effective monetary reform will have to start by changing the unit of account that government uses. If you’re interested you can read more about that on my own page on monetary reform.

      • Arcurus

        Hi Malcom,
        yes most if not all Monopolisation is not good for the economy and the people. At least partially this could be solved through for example buying land and stocks and then issuing new stocks that have some kind of demurrage. The demurrage can be used to pay taxes or provide a basic income or buy more stocks / land. Naturally with time, the stocks / land managed under this new economic system will grow and therefore will help to reduce monopolies.
        With unit of account: My suggestion would be to use for example the per hour work income counting the lower income from 80% of the people.

        With taxes, for sure its very helpful to have government support for a currency, but i think the monetary politic of the federal reserve bank is much more important. If the money is inflated too much, people can easily change their money with the current electronic banking methods and then pay their taxes on demand just in time. So they would not need to hold any inflated currency to pay taxes. In our time software could do that automatically, so you hold the currency you want the rest does the payment / conversion provider.

    • Matthew Linares

      Thanks for your work. Excellent experiments, we’ll be looking to get involved!

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